Significant changes to Capital Gains Tax coming in 2020 for Landlords and Homeowners

Recent Budgets have set out a number of changes to the Capital Gains Tax (CGT) regime, which came into effect from 6 April 2020. These affect both the timescale for reporting property disposals and paying any tax due, as well as the amount of CGT relief available when selling a property that has been used as a main residence.

Principal Private Residence (PPR) and Lettings relief

Principal Private Residence (PPR) relief ensures that capital gains made on the sale of a person’s only or main home are not subject to CGT. The relief covers not only the periods the property was occupied but also provides relief for other periods of non-occupation, such as the final 18 months of ownership.

The final 18 months period provides a useful “buffer” allowing time for those who have moved out of their former home to sell the property. This period has already been reduced once (down from 36 months) back in April 2014, but from 6 April 2020 the final 18 months exempt period will be halved again to just 9 months.  There are special rules for those with a disability or moving into care which will be unaffected.

In addition to PPR relief is ‘lettings relief’, which can further reduce a capital gain where a PPR qualifying property has also been let out, up to a maximum of £40,000 of the net gain.  However, from 6 April 2020, relief is now limited to narrowly defined circumstances in which the owner shares occupation of their house with a tenant. In reality, this will therefore render lettings relief effectively redundant, as currently, where there is just one lodger, this usually does not affect main PPR anyway, and so would be covered by that relief.

There are also no transitional rules, so periods of letting before 6 April 2020 will immediately fall within the new rules and could potentially become liable to CGT.

Individuals to face shorter window for tax payment on residential property gains

The disposal of any property not covered in full by PPR is currently reportable via an individuals Self Assessment tax return, with any resulting Capital Gains Tax (CGT) payable by 31st January following the tax year of disposal.

HMRC have long been concerned about the potentially lengthy delay between the property sale and the payment of the resulting tax bill which could in certain circumstances be as long as 22 months. As a result, the rules have been changed and from 6 April 2020 individuals disposing of a residential property will need to report the disposal on a standalone online return and pay the CGT within 30 days (of completion, not contract).  Those missing the deadline or failing to report until their tax return will be subject to interest and penalties.  It is therefore important to make sure that before completion occurs, all historical documents relating to the purchase and costs are to hand so that a calculation can be made on time.

There are a still concerns and complications regarding not only how this will interact with capital losses which may occur later in the year, but also how in-year reporting such as this may produce an estimated tax bill, one that can only be finalised after the tax year ends when all income across the tax year is known. This could create an increase in the compliance burden and potential overpayments, therefore care will be needed to ensure all submissions are as accurate as possible.

Non-Residents selling UK property

The system of early reporting for non-residents selling UK residential property has been in place since April 2015, with commercial property also becoming taxable from April 2019.

To date, those individuals who are already in self-assessment have had the option to defer any tax due to the point it would have been payable for residents through their tax return (i.e. 31st January following the end of the tax year).  However, to bring this into line with the payment deadline for residents, non-residents too will need to make the CGT payment within the same 30-day window.

Should you have any queries or concerns, or require any specific advice on a sale or potential future sale of a property, please contact Ian Drakes: idrakes@garbutt-elliott.co.uk